Sniping and Squatting in Auction Markets

Abstract

We conducted a field experiment to test the benefit from late bidding (sniping) in online auction markets. We compared sniping to early bidding (squatting) in auctions for newly-released DVDs on eBay. Sniping led to a statistically significant increase in our average surplus. However, this improvement was small. The two bidding strategies resulted in a variety of other qualitative differences in the outcomes of auctions. We show that a model of multiple concurrent auctions, in which our opponents are naïve or incremental bidders as identified in the lab, explain the results well. Our findings illustrate how the overall impact of naïveté, and the benefit from sniping observed in the lab, may be substantially attenuated in real-world market settings. (JEL D44)